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Using the solar investment tax credit for energy storage

Last updated 1/2/2019

The federal solar tax credit, also known as the investment tax credit (ITC), is one of the best financial incentives for solar in the United States. It allows you to deduct 30 percent of the cost of a solar energy system from your federal taxes, and there’s no cap on its value. The average EnergySage Solar Marketplace shopper saves nearly $9,000 on the cost of going solar thanks to the ITC.

With the rise of solar batteries like the Tesla Powerwall, solar-interested homeowners are thinking about including energy storage with their installation. In many cases, the federal tax credit can also be applied to the cost of installing a battery with your solar panel system.

Please note: At EnergySage, we are solar experts, not tax experts! Tax codes are complicated, so consult your tax advisor before deciding what is best for you.

How the solar investment tax credit works with energy storage

The main requirement for solar tax credit eligibility is that you own your solar energy system (rather than lease it from a third party provider). Even if you don’t have enough tax liability to claim the entire credit in one year, you can “roll over” the remaining credits into future years for as long as the tax credit is in effect.

Your solar battery’s eligibility for the ITC is slightly more complicated. The battery itself isn’t considered renewable energy, because it can also be charged by grid electricity. In order to get the tax credit benefits, your battery needs to be charged by renewable energy.

Eligibility for residential properties

If you are installing energy storage on a residential property, it is eligible for a credit under the ITC – as long as the battery is only charged by an on-site renewable energy system like solar. If you don't have solar panels, and plan on charging the battery with electricity from the grid, it isn't eligible for the 30 percent solar tax credit.

Eligibility for commercial properties

If you are installing energy storage on a commercial property, it is eligible for a credit under the ITC as long as the battery is charged by a renewable energy system more than 75 percent of the time. The exact value of the federal tax credit for batteries depends on how frequently the battery is charged by a renewable energy system. To claim the full value, the battery needs to be charged by renewable energy 100 percent of the time. Otherwise, the credit is based on the portion of renewable energy it receives.

For example, a battery that is charged by solar 80 percent of the time is eligible for 80 percent of the 30 percent ITC – equivalent to a 24 percent credit (80% x 30% = 24%). If this battery costs $5,000 to install, it would be eligible for a $1,200 tax credit ($5,000 x 24% = $1,200).

Don’t wait too long – the solar tax credit is expiring soon

While the solar investment tax credit is currently available to homeowners at its full 30 percent value, it won’t be around forever. This solar incentive will be phased out starting in 2020, with the exception of commercial solar installations.

2017 – 2019: The tax credit remains at 30 percent of the cost of the system.

2020: Owners of new residential and commercial solar can deduct 26 percent of the cost of the system from their taxes.

2021: Owners of new residential and commercial solar can deduct 22 percent of the cost of the system from their taxes.

2022 onwards: Owners of new commercial solar energy systems can deduct 10 percent of the cost of the system from their taxes. There is no federal credit for residential solar energy systems.

Can you claim the ITC if you add energy storage to an existing solar energy system?

The guidelines above assume that you are installing a solar battery at the same time as your solar panels. However, the National Renewable Energy Laboratory (NREL) has stated that energy storage added to an existing solar panel system should be eligible for the same tax credit benefits as a new system, as long as you own your solar panels. (See NREL's fact sheet for more information, and remember to share with your tax advisor.)

Other financial incentives for home energy storage

The federal tax credit for solar is the biggest energy storage incentive for most people, but there are other options that can also reduce your energy storage costs.

For example, if you live in California, you could get a cash rebate that covers many of your home battery costs through the Self-Generation Incentive Program (SGIP). Other states (like Massachusetts) are in the early stages of evaluating potential energy storage incentives as well. Most recently, Maryland established a solar battery tax credit in 2018 worth up to $5,000 (or $75,000 for commercial installations).

Energy storage is a relatively young industry, and there are many states and municipalities that are interested in encouraging installations of solar batteries. Talk to your installer to get the most up-to-date information on incentives for energy storage in your area.